Wednesday, December 19, 2007

The cost of pollution

Last year, the Stern Review Report on the Economics of Climate Change, a report commissioned by the UK government, caused a stir with its conclusion: The world's economies must pay relatively modest costs today to curb global warming or face an enormous bill later. Cost today? 1% of world GDP. Cost in the future? Reduction in world GDP of 5% to 20%.

It was the first analysis of its kind from a renowned economist, and it's been taken to task for using an incorrect discount rate. Still, the conclusions are hard to knock, evidenced by a recent Stern supporter: Kenneth J. Arrow, Nobel Laureate in Economics and Professor Emeritus of Stanford University. He took a fine, hard look at Stern's conclusions and says they're spot on. Not an ounce of smoke and mirrors: